Report to Congressional Requesters

United States General Accounting Office 

GAO 

October 2003 CLEAN AIR ACT 

New Source Review 

Revisions Could 

Affect Utility 

Enforcement Cases 

and Public Access to 

Emissions Data 

GAO-04-58 
EPA staff assessed the potential impact of the NSR revisions on the utility 

enforcement cases and, according to current and former EPA enforcement 

officials, determined that some of the revisions could affect the cases. EPA 

staff discussed the potential effects of the revisions with DOJ. In part as a 

result of the assessments, EPA changed some of the revisions before issuing 

them as final and proposed rules in December 2002. Specifically, EPA 

changed the content and wording of some of the provisions included in the 

final rule and determined that the rule would not affect the cases. However, 

EPA enforcement officials were very concerned that the proposed rule—

addressing when a company could consider a facility change “routine 

maintenance, repair, or replacement” and exempt from NSR—could have a 

negative impact on the cases. The concern was that proposing one specific 

definition for this exclusion that differed from the way the agency had 

applied it in the past could affect the cases’ outcome. Consequently, EPA 

instead proposed several alternative definitions—different cost thresholds 

below which a company could make a change that is exempt—for public 

comment. Nevertheless, some of the enforcement officials and stakeholders 

believe that industry’s knowledge that EPA could be defining the exclusion 

in terms more favorable to industry delayed some settlements while the rule 

was being developed, jeopardizing expected emissions reductions. 

Subsequently, in August 2003, despite seven ongoing cases, EPA announced 

a final rule specifying a 20 percent cost threshold below which a company 

could make certain changes and consider them routine replacement and 

exempt from NSR. EPA and DOJ maintain that the rule will not affect the 

cases because it applies only to future changes. But some EPA enforcement 

officials and stakeholders are concerned that even if judges find companies 

to be in violation of the old rule, judges could be persuaded, when setting 

remedies, to not require the installation of pollution controls—limiting 

emissions benefits—because under the 20 percent threshold, most of the 

facility changes in dispute would now be exempt. 

Certain provisions in the December 2002 final rule could limit assurance of 

the public’s access to data about—and input on—decisions to modify 

facilities in ways that affect emissions. This would make it more difficult for 

the public to monitor local emissions, health risks, and NSR compliance. 

Under the rule, fewer facility changes may trigger NSR and thus the need for 

permits and related requirements to notify the public about changes and to 

solicit comments—unless state and local air quality agencies have their own 

permit and public outreach rules. However, the scope of these state and 

local rules varies widely. Also under the rule, companies will now determine 

whether there is a “reasonable possibility” a facility change will increase 

emissions enough to trigger NSR—in effect policing themselves. But EPA 

has not defined “reasonable possibility,” required that companies keep data 

on all of their reasonable possibility determinations, or specified how the 

public can access the data companies do keep on site. 

Recent Environmental Protection 

Agency (EPA) revisions to the New 

Source Review (NSR) program—a 

key component of the federal 

government’s plan to limit harmful 

industrial emissions—have been 

under scrutiny by the Congress, 

environmental groups, state and 

local air quality agencies, the 

courts, and several industry groups. 

The revisions more explicitly 

define when companies can modify 

their facilities without needing to 

obtain an NSR permit or install 

costly pollution controls, as NSR 

requires. GAO was asked to 

determine (1) whether EPA and the 

Department of Justice (DOJ) 

assessed the potential impact of 

the revisions on the ongoing 

enforcement cases against coalfired utilities and, if so, what the 

assessments indicated; and (2) 

what effect, if any, the revisions 

might have on public access to 

information about facility changes 

and their resulting emissions. 

To ensure monitoring of NSR 

compliance, GAO recommends that 

EPA specify (1) what constitutes a 

“reasonable possibility” that a 

facility change is subject to NSR, 

(2) that companies maintain data 

on reasonable possibility decisions, 

and (3) how the public can access 

companies’ on-site information on 

these decisions. EPA took no 

position on the first two actions; it 

is reconsidering the reasonable 

possibility test through October 

2003. EPA agreed with the third 

recommendation. 

www.gao.gov/cgi-bin/getrpt?GAO-04-58.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact John 

Stephenson at stephensonj@gao.gov. 

Highlights of GAO-04-58, a report to the 

Ranking Minority Member, Committee on 

Environment and Public Works, U.S. 

Senate, and another requester 

October 2003

CLEAN AIR ACT

New Source Review Revisions Could 

Affect Utility Enforcement Cases and 

Public Access to Emissions Data 
Page i GAO-04-58 Clean Air Act 

Letter 1

Results in Brief 4

Background 7

Because EPA’s Assessments Showed That Some NSR Revisions 

Could Affect the Enforcement Cases, the Agency Made Changes 

before Issuing the Final and Proposed Rules 15

Portions of the December 2002 Final Rule Could Limit Assurance 

That the Public Has Input into Company Decisions to Modify a 

Facility When Modifications Affect Emissions 21

Conclusions 26

Recommendations for Executive Action 27

Agency Comments 27

Appendix I Objectives, Scope, and Methodology 30 

Tables 

Table 1: Ongoing New Source Review Court Cases Involving CoalFired Power Plants, October 2003 11

Table 2: NSR Revisions Included in the December 2002 Final Rule 13

Table 3: Judicial Settlements Entered Into with Coal-Fired Power 

Plants since Issuance of the December 2002 Final and 

Proposed NSR Rules 20

Figure 

Figure 1: New Source Review Permitting Process 9

Contents 
Page ii GAO-04-58 Clean Air Act 

Abbreviations 

CAA Clean Air Act 

DOJ Department of Justice 

EPA Environmental Protection Agency 

NAPA National Academy of Public Administration 

NEPDG National Energy Policy Development Group 

NSR New Source Review 

PAL Plantwide Applicability Limitations 

PSD Prevention of Significant Deterioration 

TVA Tennessee Valley Authority 

WEPCO Wisconsin Electric Power Company 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-04-58 Clean Air Act 

October 21, 2003 

The Honorable James M. Jeffords 

Ranking Minority Member 

Committee on Environment and Public Works 

United States Senate 

The Honorable Joseph I. Lieberman 

United States Senate 

Since its inception in 1977, the New Source Review (NSR) Program—one 

of the Clean Air Act’s (CAA) key mechanisms for maintaining air quality to 

protect public health—has prevented the emission of millions of tons of 

harmful pollutants. It has done so by requiring newly built industrial 

facilities, and existing industrial facilities undergoing major modifications 

to equipment or operating procedures, to install modern air pollution 

controls.1

 The Congress allowed existing facilities to defer installation of 

such controls until a major modification was made with the expectation 

that, over time, all facilities would install such equipment, and this would 

lead to lower overall emissions. In recent years, the program has become 

increasingly controversial because of what the utility industry believes to 

have been inconsistent interpretation and enforcement of the program by 

the Environmental Protection Agency (EPA) against power plants. Some 

of the affected companies have agreed to settlements that will cost 

hundreds of millions of dollars and require emissions reductions, while 

other companies are in various stages of litigation. In addition, two recent 

rounds of changes to this program have been the subject of congressional 

debate and litigation and have drawn the scrutiny of environmental 

groups, some state attorneys general, and some state and local air quality 

authorities. These groups are concerned about, among other things, the 

potential effect of the changes on emissions, the ongoing NSR 

enforcement cases, or the public’s ability to access information about 

facility changes and the emissions that result. 

When created, the NSR program was intended to represent a balance 

between the environmental interest in improving air quality and the 

 1

EPA defines a major modification as a physical or operational change that causes a 

significant increase in emissions. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-04-58 Clean Air Act 

economic interest in allowing capital improvement projects at industrial 

facilities. Accordingly, one of the program’s objectives is to protect public 

health in areas that both meet and do not meet federal air quality 

standards. Companies that want to make changes to existing facilities that 

would result in emissions increases exceeding a certain threshold have to 

apply for a federal NSR permit and then typically install some type of 

pollution control.2

 According to EPA, the cost of installing controls can 

reach hundreds of millions of dollars for some facilities. However, 

companies can be exempt from the federal NSR requirements if (1) a 

facility change is considered “routine maintenance, repair, and 

replacement,” (2) the company agrees not to significantly increase its 

emissions after making a physical or operational change, or (3) the 

company balances any emissions increases resulting from a change in a 

facility with emissions reductions elsewhere in the same facility. To 

implement the NSR program, the CAA requires that EPA provide 

permitting and enforcement authority to state and local air pollution 

agencies, and most of these agencies currently have this authority. Some 

states and localities also have their own NSR programs for governing new 

construction or facility changes whose emissions thresholds are lower 

than the federal NSR threshold. 

Because of the NSR program’s complexity and administrative burden, 

among other things, EPA began a reform process in 1992 that resulted in 

proposed changes to the program in 1996 and 1998, but the agency did not 

take final action until 2002. In the meantime, EPA referred to the 

Department of Justice (DOJ) a number of alleged violations of existing 

NSR provisions by the owners and operators of some of the largest coalfired power plants in the country.3

 In general, EPA targeted companies 

that undertook projects without obtaining a permit or installing pollution 

controls but that EPA believed were significant facility changes that 

resulted in emissions increases and were therefore subject to NSR. For 

their part, the companies believed that their projects were not subject to 

NSR for various reasons, including that the projects qualified for the 

 2

The thresholds for these “major” modifications vary by pollutant and the air quality status 

of the area in which the facility is located. For example, in areas that meet air quality 

standards, a 100-ton per-year increase is significant for carbon monoxide, while a 40-ton 

per-year increase is significant for nitrogen dioxide or sulfur dioxide. 

3

EPA also referred a number of alleged violations of the NSR provisions involving 

industries other than coal-fired power plants, such as the petroleum refinery industry. 

Generally, the defendants in those cases did not challenge EPA’s interpretation of the term 

“routine maintenance,” and many of these cases were settled. 
Page 3 GAO-04-58 Clean Air Act 

“routine maintenance, repair, and replacement” exclusion (hereafter 

referred to as the “routine maintenance exclusion”). In November 1999, 

DOJ filed seven NSR enforcement actions in U.S. district courts, and EPA 

issued an administrative compliance order to the Tennessee Valley 

Authority (TVA). Subsequently, DOJ filed an additional six NSR 

enforcement actions against several other companies.4

 In many of these 

federal cases, states have also taken action to intervene against the power 

plants. As of October 2003, 7 of the 14 cases have been settled or decided. 

As a result of concerns about regulatory barriers to investments in energy 

efficiency and pollution control projects, among other things, EPA decided 

to finalize some of the 1996 and 1998 NSR reform proposals. Subsequently, 

the agency issued final and proposed rules to revise the program in 

December 2002. First, the agency decided to modify certain of the 

proposed 1996 NSR revisions and issue them as a final rule that provided 

companies with options to avoid triggering NSR requirements. For 

example, companies could set a limit on a facility’s overall emissions and 

then make changes within the facility without being subject to NSR, or 

obtain credit for controls already in place. Because EPA received a 

number of petitions from parties asking the agency to reconsider certain 

aspects of this rule, EPA took public comments on certain features of the 

final rule during July and August 2003. The agency is analyzing the 

comments to determine if it should make any changes in response. Also in 

December 2002, EPA issued for public comment a proposed rule to revise 

the criteria by which it would determine if a facility change is “routine 

maintenance, repair, or replacement” and therefore exempt from NSR. 

After reviewing the comments received on the proposed rule, in August 

2003, EPA announced plans to issue a final rule defining when a facility 

change could be considered a replacement under the routine maintenance 

exclusion. 

When EPA formally announced in June 2002 that it intended to revise, 

among other things, the routine maintenance exclusion, several 

environmental groups and some state attorneys general involved in the 

ongoing enforcement cases raised concerns that the revisions could 

negatively affect the cases. Among other things, these groups were 

concerned that industry attorneys might use the planned revisions to the 

 4

Due to an adverse jurisdictional decision, Alabama Power Company was dismissed as one 

of the defendants from one of the seven cases that had been filed in November 1999. DOJ 

refiled against this company in January 2001. 
Page 4 GAO-04-58 Clean Air Act 

routine maintenance exclusion to delay the cases by arguing that the 

lawsuits should be dismissed because under the rule proposal, the 

companies’ actions would not violate the NSR requirements. 

In light of the concerns about the impact of the revisions, as well as recent 

congressional debate on them, you asked us to determine (1) whether EPA 

and DOJ assessed the potential impact of the NSR revisions on 

enforcement cases against coal-fired utilities before issuing them as final 

and proposed rules in December 2002 and, if so, what the assessments 

indicated and (2) what effect, if any, the December 2002 final rule might 

have on public access to information on facility changes and the resulting 

emissions.5

 You also asked us to review EPA’s assessment of the economic 

and environmental impact resulting from the December 2002 final rule, 

and we presented our findings to you in a report issued on August 22, 

2003.6

To respond to these objectives, among other things, we met with EPA 

officials who were involved in discussions related to the potential impact 

of the NSR revisions on the coal-fired power plant enforcement cases, 

including officials from three EPA offices—Air Quality Planning and 

Standards, Enforcement and Compliance Assurance, and General 

Counsel—and DOJ’s Environment and Natural Resources Division. We 

also spoke to former EPA officials who had been involved in these 

discussions. To determine how the December 2002 NSR final rule could 

affect public access to information about facility changes and their 

associated emissions, we reviewed the relevant federal NSR requirements 

before the revisions and compared them with those in the final rule. We 

also met with officials from EPA’s offices of Air Quality Planning and 

Standards and Enforcement and Compliance Assurance, industry groups, 

environmental groups, and state associations to discuss their views on the 

effects of the final rule on public access to this information. 

EPA enforcement officials assessed the potential impact of the draft NSR 

revisions (before they were issued as final and proposed rules in 

 5

We focused on the December 2002 final rule revisions because EPA did not select the final 

criteria it would use to determine whether a facility change is considered a “replacement” 

and exempt from NSR until August 27, 2003, after we had completed most of our work. 

6

See U.S. General Accounting Office, Clean Air Act: EPA Should Use Available Data to 

Monitor the Effects of Its Revisions to the New Source Review Program, GAO-03-947

(Washington, D.C.: Aug. 22, 2003). 

Results in Brief 
Page 5 GAO-04-58 Clean Air Act 

December 2002) on the ongoing enforcement cases against coal-fired 

utilities and discussed their views about the impact with DOJ officials. 

According to current and former EPA enforcement officials, because they 

determined that certain provisions could affect the cases, they changed 

the provisions to limit their effects. Nevertheless, the EPA officials and 

representatives of some environmental groups believe settlement of some 

cases was delayed during development of the two rules because of the 

possibility that the routine maintenance exclusion could be defined in 

terms favorable to industry, thereby jeopardizing the expected emissions 

reductions. According to available documentation and the EPA 

enforcement officials, the EPA staff during this time prepared various 

analyses to illustrate the draft revisions’ potential impact on the cases and 

presented the results in briefings to senior EPA managers, including the 

EPA Administrator. In formulating the final rule, the agency staff 

determined that, after carefully making content and wording changes, the 

rule would not affect the integrity of the enforcement cases. However, in 

formulating the proposed rule, the staff determined that the revisions EPA 

was considering could adversely affect the cases. Specifically, EPA was 

considering establishing a specific cost threshold below which facility 

changes would be considered “routine maintenance, repair, and 

replacement” and thereby exempt from NSR permit and pollution control 

requirements; in the enforcement cases, EPA was challenging the way in 

which companies used this exclusion in the past. In general, the EPA 

enforcement officials were concerned that if the agency proposed a 

specific definition of the exclusion that differed from the way EPA had 

applied the exclusion in the past, defendants could argue that some of the 

facility changes under dispute should now be considered exempt. In part 

because of these concerns, EPA proposed several options for calculating 

cost thresholds to define this exclusion and solicited public comment on 

them. 

After reviewing the comments submitted, EPA announced a final rule in 

August 2003 specifying that a facility change may be considered a 

replacement—and exempt from NSR—if the cost of the change is less than 

20 percent of the cost of replacing an entire process unit, such as an 

electric steam-generating unit in a power plant. EPA assessments indicate 

that under this threshold, almost all of the facility changes at issue in the 

enforcement cases could now be exempt. Therefore, some of the EPA 

enforcement officials and key stakeholders are concerned the August rule 

could serve as a disincentive for utilities to settle the remaining seven 

cases and could affect judges’ decisions on remedies in these cases, 

especially regarding the installation of pollution controls, affecting the 

expected emission reductions. Conversely, EPA and DOJ argue in the 
Page 6 GAO-04-58 Clean Air Act 

litigation that the rule governs only prospective conduct and should not 

impact the liability of companies who violated the law in the past. 

Overall, the final rule could result in less assurance that the public will 

have access to data on facility changes and the emissions they create, as 

well as input on decisions about undertaking these changes in the first 

place and controlling their emissions. Less information would make it 

more difficult for the public to monitor local emissions and health risks, as 

well as compliance with NSR. The full impact of the rule will partly 

depend on the extent to which state and local air quality agencies have 

their own regulations requiring public notice, comment, and reporting on 

facility changes. In particular, one provision of the final rule could 

increase publicly available information but decrease the public’s 

participation in facility changes that affect emissions. Under the provision, 

a company may set an annual limit on emissions—good for 10 years—

across an entire facility and then modify equipment or operations within 

the facility during this time without being subject to NSR, as long as it 

does not exceed its emissions limit. To initially set this limit, the company 

must notify the public and provide an opportunity to comment on the 

company’s intended action. The company must also periodically report on 

the facility’s overall emissions, individual changes made, and the 

emissions generated from each piece of equipment within the facility. On 

the other hand, because the company no longer has to obtain a permit for 

a major modification, it does not have to notify the public of its intended 

action and solicit comment. EPA maintains that most companies, for 

various reasons, were not obtaining federal NSR permits for these 

modifications anyway, even before the rules, so overall, they will not have 

an impact. Several industry representatives also believe that the public will 

still be involved in decisions and have access to information about facility 

changes and emissions because other federal CAA programs, or states’ and 

localities’ own programs, will require it, but according to states and other 

stakeholders we contacted, the scope and stringency of these other 

programs vary widely. 

Two other provisions in the final rule—outlining how a company is to 

measure its historic emissions and estimate increases from a facility 

change—when implemented together could also limit assurance that the 

public will have access to information about changes and their emissions. 

To determine if emissions resulting from a change will be significant 

enough to trigger NSR requirements, a company determines its historic 

baseline of emissions, estimates the expected emissions after a facility 

change, and calculates the difference. Before the final rule, a company 

generally had to use the most recent 24 months of emissions as the 
Page 7 GAO-04-58 Clean Air Act 

baseline and assume its facility would operate at full production when 

estimating expected emissions, even if the facility had not been operating, 

or did not plan to operate, at this level. Industry complained that these 

requirements ignored market fluctuations and a facility’s actual 

production levels. In the final rule, EPA generally allowed companies to 

use any 24-month period over the prior 10 years to establish a baseline and 

to assume actual production levels. Some stakeholders maintain, although 

EPA disagrees, that these revisions will result in fewer calculations 

showing emissions potentially increasing enough to trigger NSR. 

Therefore, fewer facility changes will require a federal permit and its 

related public participation requirements, although some may still be 

subject to these requirements under state and local programs. 

Moreover, if the calculation shows that emissions do not trigger NSR, the 

company does not have to maintain documentation of its calculations. 

Under the new rules, the company may determine that there is still a 

reasonable possibility the change will trigger NSR, and if it does, the 

company maintains documentation of this decision on site. However, the 

rule does not define what constitutes a “reasonable possibility.” Therefore, 

companies may be inconsistent in how they make this decision and 

maintain records of it, and they are in effect policing their own NSR 

compliance. As the National Academy of Public Administration (NAPA) 

recently concluded, such self-policing makes it difficult for EPA, state and 

local agencies, and the public to verify company compliance with NSR. 

Furthermore, the rule does not specify how the public can access the 

company’s on-site documentation of its reasonable possibility 

determinations. At the request of a number of stakeholders, EPA agreed to 

reconsider the “reasonable possibility” provision, among others, is 

assessing the comments it received, and expects to announce whether it 

will make any changes to the provision by the end of October. In this 

context, we are recommending that EPA (1) issue guidance better defining 

what constitutes a “reasonable possibility” that facility changes will trigger 

NSR, (2) require companies to maintain documentation of all “reasonable 

possibility” determinations, and (3) determine, with state and local air 

quality agencies, how to ensure public access to company’s on-site 

information on facility changes and emissions. 

Under the CAA, EPA establishes health-based air quality standards that the 

states must meet and regulates air pollutant emissions from various Background 
Page 8 GAO-04-58 Clean Air Act 

sources, including industrial facilities and mobile sources such as 

automobiles. EPA has issued standards for six primary pollutants—carbon 

monoxide, lead, nitrogen oxides, ozone,7

 particulate matter, and sulfur 

dioxide—that have been linked to a variety of health problems. For 

example, ozone can inflame lung tissue and increase susceptibility to 

bronchitis and pneumonia. In addition, nitrogen oxides and sulfur dioxide 

contribute to the formation of fine particles that have been linked to 

aggravated asthma, chronic bronchitis, and premature death. About 133 

million Americans already live in areas with air pollution levels above 

health-based air quality standards, according to EPA. 

The NSR program, established in 1977, is intended to ensure as new 

industrial facilities are built and existing ones expand that public health is 

protected, that the air quality in national parks and wilderness areas is 

maintained, and that economic growth will occur in a manner consistent 

with the preservation of existing clean air resources. The NSR program 

comprises (1) the Prevention of Significant Deterioration (PSD) program, 

which generally applies to pollutants in areas that meet federal air quality 

standards for those pollutants or for which the attainment status is 

unclassified, and (2) the Nonattainment NSR program, which generally 

applies to pollutants in areas that are not meeting the standards for those 

pollutants, although the term NSR usually refers to both. 

The federal NSR program is primarily administered by state and local air 

quality agencies, with oversight by EPA. If a company plans a change to its 

facility and determines that it will trigger federal NSR regulations, the 

company must then prepare and file a permit application with the relevant 

state or local agency. Figure 1 illustrates this permitting process. 

 7

Ozone forms when nitrogen oxides react with volatile organic compounds in the presence 

of heat and sunlight. 
Page 9 GAO-04-58 Clean Air Act 

Figure 1: New Source Review Permitting Process 

a

While there is no federal NSR requirement specifically requiring public access to compliance 

information, there is such a requirement under Title V of the CAA that applies to NSR data. 

The state or local permitting agency determines if the application is 

complete; develops a draft permit, if justified; notifies EPA and the public 

of the application; and solicits comments on the draft permit. The 

permitting agency then responds to comments and issues a final permit, if 

merited, which can be administratively or judicially appealed. The 

permitting agency must provide EPA with a copy of every permit 

application and draft permit; address EPA’s comments, if any; and notify 

EPA of the final action taken. In addition, the records and reports the state 

or local agency collects as it monitors compliance with the permit and 

NSR program generally must be available for public review.8

Even when federal NSR requirements do not apply to a facility change, the 

project may still be subject to other federal, state, and local air pollution 

control requirements. For example, under Title V of the CAA, a company 

must obtain a facility operating permit that consolidates all of the 

company’s federal obligations for controlling air pollution and complying 

with the act. These obligations can include meeting the requirements and 

standards of states’ and localities’ federally approved plans for improving 

air quality; other federal requirements to control pollution, such as those 

controlling hazardous air pollutants not also covered under NSR; and 

requirements included in any federal, state, or local NSR permits issued to 

the facility. EPA has now given most state and local agencies approval to 

implement the Title V operating permit programs that, among other things, 

provide for public participation in the Title V permitting process. These 

 8

While there is no federal NSR requirement specifically requiring public access to 

compliance information, Title V of the CAA provides that emissions and compliance 

monitoring reports for major sources of emissions shall be available to the public. 
Page 10 GAO-04-58 Clean Air Act 

operating permits are issued and then renewed every 5 years and can be 

updated at any time. 

During the mid-1990s, EPA began evaluating NSR compliance for entire 

industry sectors that produced significant amounts of air pollution. The 

agency focused its inspections on industry sectors it suspected of potential 

NSR violations. In particular, EPA looked at industries with a decreasing 

number of facilities but static or increased production, industries with 

many years of operation and high emissions but with no record of NSR 

permits, and industries with new plants being constructed with no NSR 

permits. EPA’s data suggested that facilities in some sectors might have 

been making major modifications to increase production or extend the life 

of the facilities’ equipment—and therefore increasing emissions—without 

obtaining NSR permits or installing pollution controls. As a result, EPA 

targeted its NSR investigations on coal-fired power plants, petroleum 

refineries, steel minimills, chemical manufacturers, wood products 

companies, and the pulp and paper industry. In 1996, EPA began its 

investigation of the coal-fired utility industry. Subsequently, EPA referred 

to DOJ a number of alleged violations of the NSR provisions. Generally, 

the referrals indicated EPA’s conclusion that the owners and operators of 

some of the largest coal-fired power plants in the country had violated the 

NSR provisions by making physical changes to their facilities, without 

obtaining a permit, that increased emissions and that the agency did not 

consider to be routine in nature. The companies, however, believed the 

changes did not violate the NSR program for a number of reasons, 

including that the projects were exempt under the routine maintenance 

exclusion. After reviewing these referrals, DOJ in November 1999 filed 

seven enforcement actions in U.S. district courts. That same month, EPA 

issued an administrative compliance order to the Tennessee Valley 

Authority alleging multiple NSR violations at its coal-fired power plants. 

Since these actions were taken, DOJ has filed an additional six 

enforcement actions against coal-fired utilities. As of October 2003, 7 of 

the 14 cases have been settled or decided.9

 Table 1 provides a summary of 

the seven ongoing enforcement cases and the status of each. 

 9

The case involving the administrative compliance order, issued to the Tennessee Valley 

Authority (TVA), was upheld by EPA’s Environmental Appeals Board. TVA’s appeal of the 

Board’s decision was denied by the 11th Circuit Court of Appeals. Six other cases—filed 

against Alcoa, PSEG Fossil, Southern Indiana Gas and Electric, Tampa Electric, Virginia 

Electric Power, and Wisconsin Electric Power—were settled. 
Page 11 GAO-04-58 Clean Air Act 

Table 1: Ongoing New Source Review Court Cases Involving Coal-Fired Power Plants, October 2003 

Case Court Status 

Power Plants 

Sued 

U.S. v. Illinois Power Co. and Dynegy Midwest 

Generation Inc. 

U.S. District Court, 

Southern District of 

Illinois 

Liability trial held June 2003; closing 

argument September 29, 2003; remedy trial 

not set 

1 

U.S. and States of Conn., N.J., and N.Y. v. 

Cinergy Corp. 

U.S. District Court, 

Southern District of 

Indiana 

Liability trial begins June 1, 2005 6 

U.S. and States of Conn., Mass., Md., N.J., 

N.H., N.Y., R.I., and Vt. v. American Electric 

Power Service Corp. 

U.S. District Court, 

Southern District of 

Ohio 

Liability trial begins January 2005 11 

U.S. and States of Conn., N.J., and N.Y. v. 

Ohio Edison Co. 

U.S. District Court, 

Southern District of 

Ohio 

Liability ruling in favor of U.S. issued August 

7, 2003; remedy trial April 19, 2004 

1 

U.S. v. Georgia Power Co. and Savannah 

Electric & Power Co. 

U.S. District Court, 

Northern District of 

Georgia 

Administratively closed to await TVA 

decision; court notified of decision; parties 

have not moved to reopen 

3 

U.S. v. Alabama Power Co. U.S. District Court, 

Northern District of 

Alabama 

Stayed 5 

U.S. v. Duke Energy Corp. U.S. District Court, 

Middle District of North 

Carolina 

Summary judgment granted in part and 

denied in part on August 26, 2003; liability 

trial date continued; remedy trial not set 

8 

Source: Department of Justice. 

Over the years since its inception, various aspects of the NSR program 

have been subject to litigation that resulted in court decisions affecting the 

program. For example, in 1990, the Seventh U.S. Circuit Court of Appeals 

issued a decision in Wisconsin Electric Power Co. v. Reilly.10 EPA argued 

in the case that when Wisconsin Electric Power Company (WEPCO) was 

estimating whether a physical change would increase emissions enough to 

trigger NSR, the company should have assumed it would operate the 

modified equipment at the maximum level possible, even though WEPCO 

had never operated at that level. The court ruled that this requirement was 

inappropriate. EPA then issued a rule for electric steam-generating utilities 

only that allowed them to estimate their projected annual emissions after 

the change based on their actual emissions history for purposes of 

 10Wisconsin Electric Power Co. v. Reilly, 893 F.2d 901 (7th Cir. 1990) (“WEPCO”). 
Page 12 GAO-04-58 Clean Air Act 

preconstruction permitting, but they would have to report their actual 

emissions for 5 years after making the change.11

More recently, in January 2001, the President established a task force—the 

National Energy Policy Development Group (NEPDG)—chaired by the 

Vice President to develop a national energy policy. In its May 2001 

National Energy Policy Report,12 the group recommended to the President 

that EPA and the Department of Energy investigate the impact of the NSR 

program on investments in new utility and refinery generation capacity, on 

energy efficiency, and on environmental protection. The group also 

recommended that the Attorney General review the existing NSR 

enforcement actions to ensure they were consistent with the CAA and its 

implementing regulations. In response to the group’s recommendations, 

DOJ issued a report in January 2002 that concluded EPA had a reasonable 

basis for bringing those actions against coal-fired utilities.13

In June 2002, also in response to the group’s recommendations, EPA 

issued a report to the President and concurrently issued a set of 

recommendations for revising the NSR program.14 EPA issued a final rule 

in December 2002 that contained five provisions based on its June 2002 

recommendations, outlined in table 2 below.15

 1157 Fed. Reg. 32314 (July 21, 1992) (codified at 4 C.F.R. Parts 51, 52, and 60). 

12For more information on the NEPDG’s report, see U.S. General Accounting Office, 

Energy Task Force: Process Used to Develop the National Energy Policy, GAO-03-894

(Washington, D.C.: Aug. 22, 2003). 

13This report focused principally on enforcement actions against coal-fired power plants 

because defendants in other industries generally had not alleged that EPA’s actions were 

inconsistent with the CAA. 

14New Source Review: Report to the President, U.S. Environmental Protection Agency, 

June 2002. 

15Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review 

(NSR): Baseline Emissions Determination, Actual-to-Future Actual Methodology, Plantwide 

Applicability Limitations, Clean Units, Pollution Control Projects, 67 Fed. Reg. 80186 (2002) 

(to be codified at 40 C.F.R. Pts. 51 and 52.) 
Page 13 GAO-04-58 Clean Air Act 

Table 2: NSR Revisions Included in the December 2002 Final Rule 

Provision Final Rule Requirements 

Clean unit Excludes production equipment with state-of-the-art pollution controls from NSR 

requirements for up to 10 years after installation provided the unit will still meet the 

physical or operational characteristics that formed the basis for the clean unit designation. 

Revised method for calculating “baseline” 

emissions 

Changes the timeframe for computing a piece of equipment’s baseline emissions from the 

most recent 24-month period—or any other period more representative of normal 

operations—to any 24-month period in the past 10 years adjusted for any new emission 

limits added since the baseline period. No changes were made to rule for electric utilities. 

Pollution control project Exempts pollution prevention and control projects from NSR if they are on EPA’s list of 

“environmentally beneficial” projects or on a case-specific basis if a non-listed project is 

determined to be environmentally beneficial. It also must be shown that the project will not 

cause or contribute to a violation of federal air quality standards or adversely impact air 

quality standards for a national park. 

Plantwide emissions limit Allows facilities to set a single emissions limit for an entire plant and then make changes 

within the facility without triggering NSR, provided they do not exceed the limit. 

Revised test for calculating emissions 

changes 

Allows a facility to calculate expected emissions after a facility change based on its 

projection of its future operation, rather than at full capacity. This provision extended to all 

other industries the same methodology for calculating expected emissions that EPA had 

granted to the utility sector in the early 1990s. 

Source: EPA. 

Subsequently, in response to a number of requests, EPA agreed to 

reconsider certain aspects of the final rule, took public comment on those 

features during July and August 2003, and is assessing the comments to 

determine if the agency needs to make any changes. 

Also in December 2002, EPA issued for public comment a proposed rule 

that would change the method for determining whether a facility change 

can be exempt from federal NSR requirements because it is routine 

maintenance, repair, or replacement.16 EPA intended for the final version 

of the proposed rule to supplement its case-by-case determination of what 

facility changes qualify for the routine maintenance exclusion, using 

factors such as the nature, extent, cost, frequency, and purpose of the 

change. EPA proposed to determine a facility’s total replacement costs 

and calculate a certain percentage of those costs that the agency would 

allow the company to spend on routine maintenance and repair without 

 16“Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review: 

Routine Maintenance, Repair and Replacement,” 67 Fed. Reg. 80290 (2002). 
Page 14 GAO-04-58 Clean Air Act 

triggering NSR. EPA proposed several alternative cost thresholds for 

routine maintenance and repair below which modifications could be 

considered exempt and solicited comments on the thresholds. EPA also 

included for comment a provision that would generally allow a facility to 

consider the replacement of existing equipment with identical or 

functionally equivalent new equipment as routine replacement, depending 

on the amount of costs involved. The agency announced a final rule in 

August 2003, specifying the cost threshold industry could use to replace 

equipment and exempt it from NSR. This rule will finalize one aspect of 

the December 2002 proposed rule and, at this time, the agency is not 

taking action to finalize any other aspects of this proposed rule. 

The NSR revisions have recently been the subject of recent congressional 

debates. In 2002, Congress held hearings during which members of 

Congress, EPA and DOJ officials, and a number of stakeholders—

including representatives of industry, states, and environmental groups—

presented their positions on the NSR program revisions. For example, 

during a July 16, 2002, hearing before the Senate Committee on 

Environment and Public Works, some state attorneys general and 

environmental group officials testified that the revisions could seriously 

undercut the ongoing enforcement cases, jeopardizing the millions of tons 

in pollution reductions that those cases could yield. At the same hearing, 

EPA and industry officials generally testified that the revisions would 

allow companies to modify their facilities so that they are more energy 

efficient and, as a result, would emit less pollution. In addition, during a 

September 3, 2002, hearing before the Subcommittee on Public Health, 

Senate Committee on Health Education, Labor, and Pensions, former EPA 

Administrator Carol Browner testified that, among other things, she was 

concerned that the revisions would “eliminate the very features of the 

current law that provide transparency to the public—monitoring, record 

keeping, and reporting.” 
Page 15 GAO-04-58 Clean Air Act 

EPA enforcement officials assessed the potential impact of the NSR 

revisions (before issuing them as final and proposed rules in December 

2002) on the enforcement cases against coal-fired utilities and determined 

that some of the revisions could have an impact. These EPA officials 

discussed their views on the potential impact with DOJ. In part as a result 

of the assessments, for the revisions that were included in the final rule, 

EPA adjusted the content and wording of the language before issuing the 

rule so that they were not expected to affect the cases. For the proposed 

rule, the EPA enforcement staff had concerns that if EPA specifically 

defined what facility changes would qualify for the routine maintenance 

exclusion, the cases could be affected since they involved disagreements 

about how EPA had been applying the routine maintenance exclusion in 

the past. Consequently, EPA decided not to specifically define what 

activities qualify as routine maintenance but to propose several options for 

calculating cost thresholds below which modifications could be 

considered exempt and solicited public comment on the options. 

Nevertheless, during the 11⁄2 years that the final language of the revisions 

was being debated, some EPA enforcement officials and key stakeholders 

believe that some companies were discouraged from settling their cases 

because of the possibility that EPA could revise the definition of the 

exclusion in a way that would be favorable to industry—although some 

companies did settle after the proposed rule was issued. Furthermore, 

some EPA enforcement officials and key stakeholders believe that the 

announcement of the August 2003 final rule, in which EPA set a specific 

cost threshold for routine replacement activities, could also delay 

settlement of some of the cases and could affect judges’ decisions in the 

cases about what remedies to apply to companies that are found to be in 

violation of the old NSR rule. 

EPA enforcement officials assessed the potential impact of the draft NSR 

revisions that were issued as a final rule in December 2002 on the 

enforcement cases and discussed their views about the impact with DOJ. 

According to current and former EPA enforcement officials, after EPA 

internally debated and agreed upon the language of the revisions, they 

were not expected to adversely affect the ongoing enforcement cases 

against coal-fired utilities. According to these EPA officials, in 2001 and 

2002, several briefings and less formal discussions occurred during which 

the enforcement staff raised concerns about the revisions’ potential 

adverse impact on the cases. Officials involved in at least one, and in some 

cases several, of these meetings included the EPA Administrator, the 

Deputy Administrator, the Assistant Administrator for Air and Radiation, 

the former Principal Deputy Assistant Administrator for Enforcement and 

Because EPA’s 

Assessments Showed 

That Some NSR 

Revisions Could 

Affect the 

Enforcement Cases, 

the Agency Made 

Changes before 

Issuing the Final and 

Proposed Rules 

After Careful Content and 

Wording Changes, EPA 

Determined That the Final 

Rule Would Not 

Significantly Affect the 

Cases 
Page 16 GAO-04-58 Clean Air Act 

Compliance Assurance, and the Director of the Air Enforcement Division. 

DOJ’s Deputy Assistant Attorney General for Environment and Natural 

Resources and other DOJ enforcement staff also discussed the potential 

impact of the proposed revisions on the cases with EPA’s Assistant 

Administrator for Air and Radiation and staff in EPA’s offices of the 

General Counsel and Enforcement and Compliance Assurance. According 

to EPA enforcement officials, they prepared analyses—some of which 

were documented in briefing papers, charts, and graphs—that were 

discussed internally. EPA enforcement officials said that because their 

main objective in raising concerns about the revisions was to maintain the 

cases, they urged senior agency officials to tailor the language of the 

revisions to address their concerns before issuing the final rule. The 

enforcement staff felt this would help ensure that the language finally 

adopted would minimize any impact on the cases. 

More specifically, according to the Director of EPA’s Air Enforcement 

Division, the staff prepared analyses indicating that three of the revisions 

in the rule would have no impact on the enforcement cases. These three 

revisions involve the exemptions for clean units, pollution control 

projects, and the option of setting a plantwide limit on emissions. In 

addition, because of the 1990 WEPCO decision, utilities already had the 

authority, before EPA issued the final rule, to use the revised method for 

estimating emission changes resulting from a facility change. Therefore, 

since this provision in the rule was not a significant change for the utility 

industry, the EPA staff did not expect this provision to affect the cases. 

However, the EPA enforcement officials were concerned about the 

provision establishing a revised method for calculating past, or baseline, 

emissions. Specifically, EPA considered changing the time period used to 

calculate baseline emissions for utilities. According to the Director of 

EPA’s Air Enforcement Division, the enforcement staff prepared an 

analysis comparing the effects of using different time periods on the 

viability of each case. In part as a result of this analysis, the baseline 

calculation for utilities was not changed in the final rule. 
Page 17 GAO-04-58 Clean Air Act 

During the same briefings held in 2001 and 2002, the EPA enforcement 

staff expressed concern that more explicitly defining what facility changes 

qualify for the routine maintenance exclusion, as anticipated in the 

December 2002 proposed rule, had the most potential to negatively affect 

the cases. They were concerned because the enforcement cases generally 

involve disagreements between EPA and the utilities on whether past 

facility changes made without an NSR permit qualified for the routine 

maintenance exclusion. In general, EPA enforcement officials were 

concerned that if the agency specifically proposed a definition of routine 

maintenance that was different from the way the agency had applied the 

exclusion in the past, defendants could delay the cases by arguing that 

some of the facility changes under dispute in the lawsuits might be able to 

qualify for an exemption from NSR. For example, the EPA officials were 

considering setting a cost threshold for an allowance for annual 

maintenance, repair, and replacement below which a company would not 

have to obtain an NSR permit. EPA enforcement officials believed that if a 

threshold were proposed that was higher than the costs incurred for the 

facility changes at issue in the cases, the cases could be adversely 

impacted. Specifically, the officials were concerned that judges might not 

order companies to install pollution controls even if they were found to be 

in violation of the prior NSR rule, since the facility changes in question 

would now be legal under the proposed rule (if adopted as proposed). The 

EPA enforcement staff compared the potential impact of various cost 

thresholds on the viability of each case. Based in part on these 

comparisons, EPA decided not to specifically set cost thresholds for 

individual industries in its December 2002 proposed rule, but rather to 

solicit comments on what thresholds to use. 

The EPA enforcement staff had similar concerns about the other revision 

under consideration for the December 2002 proposed rule. It would allow 

companies to consider the replacement of existing equipment with 

identically or functionally equivalent new equipment as “routine 

maintenance, repair, and replacement” and be exempt from federal NSR 

regulations. The cost of the equipment had to be below a certain 

percentage of the cost to replace a process unit. A process unit for power 

plants is defined as an electric utility steam-generating unit (power plants 

can have more than one of these). The replacement equipment also had to 

meet certain criteria, such as maintaining the basic design parameters of 

the original unit. EPA enforcement officials were concerned that, 

depending on where the threshold was set, this revision could also affect 

the cases. As with the first provision, the EPA enforcement staff compared 

the potential impact of various replacement cost thresholds (up to 50 

percent) on the viability of each case in dispute at the time and concluded 

Because EPA’s 

Assessments of the Draft 

Proposed Rule Raised 

Concerns That It Could 

Affect the Cases, EPA 

Changed Its Strategy and 

Revised the Rule before It 

Was Issued 
Page 18 GAO-04-58 Clean Air Act 

that 95 percent to 98 percent of the facility changes at issue in the utility 

enforcement cases would be considered routine maintenance—and thus 

exempt from NSR—if the new rule were applied and the threshold were 

set at more than about 1 percent or 2 percent of the process unit’s costs. 

Again, EPA decided not to specify a threshold in the December 2002 

proposal but instead to solicit comments on the overall approach. EPA 

reviewed the comments submitted on both proposed revisions and, even 

though seven of the enforcement cases had not yet been settled or decided 

by the courts, announced a final rule in August 2003 specifying a 20 

percent threshold for the replacement of existing equipment, provided the 

replacement does not change the basic design parameters of the process 

unit and the process continues to meet enforceable emission and 

operational limitations. To illustrate the impact of this cost threshold, it 

costs approximately $800 million on average to replace a 1,000-megawatt 

electric utility steam-generating unit, excluding the costs of pollution 

controls, according to EPA enforcement officials. Under the new rule, an 

unlimited number of projects costing on average between $8 million and 

$160 million each (assuming cost thresholds of between 1 percent and 20 

percent) could be excluded from NSR requirements. According to the 

Director of EPA’s Air Enforcement Division, this could allow companies to 

make facility changes without an NSR permit that are much more 

substantial than any of those in dispute in the cases. 

According to former and current EPA senior enforcement officials, despite 

the agency’s efforts to minimize the impact of the final and proposed rules 

on the enforcement cases, they believe the possibility that EPA could 

revise the routine maintenance exclusion in ways that could improve the 

companies’ legal positions in the cases had a detrimental effect on the 

willingness of some companies to settle. The officials stated that EPA 

normally settles 90 percent to 95 percent of its enforcement cases before 

they go to trial, but that companies were slower to settle after EPA 

publicly acknowledged it was considering the revisions. For example, 

according to a former EPA enforcement official who had been involved in 

the cases, the attorneys representing some of the companies in the cases 

asked EPA why they should comply with an interpretation of the law that 

the administration was trying to change. These concerns were reinforced 

further when an industry attorney in a state NSR enforcement case 

suggested that the court delay the case because EPA was still 

reconsidering its interpretation of the CAA through the NSR revisions. 

Similarly, the current Director of EPA’s Air Enforcement Division believes 

the most significant impact on the enforcement cases was that companies 

delayed settling during the year and a half the agency spent discussing 

EPA Enforcement Staff 

and Key Stakeholders 

Believe the Possibility of 

Revising the Routine 

Maintenance Exclusion 

Delayed Settlement of 

Some Cases, and the 

August 2003 Rule May 

Have Additional Negative 

Effects 
Page 19 GAO-04-58 Clean Air Act 

NSR program reforms before issuing the final and proposed rules. 

According to current and former enforcement officials, companies spent 

this time lobbying EPA to include language in the revisions that would 

help them win their cases. Similarly, the National Academy of Public 

Administration (NAPA) concluded in an April 2003 report on the NSR 

program, “The possibility that EPA would soon reform the NSR 

modification provisions favorably to industry may have led to [some] 

companies’ reluctance to settle their cases.”17

According to the Director of EPA’s Office of Air Enforcement, in the 

months immediately following the issuance of the December 2002 final 

and proposed rules, settlement activity did increase. During this time, EPA 

and DOJ entered into settlement agreements with four companies that 

resulted in the annual reduction of approximately 421,000 tons of sulfur 

dioxide and nitrogen oxide combined.18 See table 3 for a list of these 

companies. 

 17A Breath of Fresh Air: Reviving the New Source Review Program, a report by a panel of 

the National Academy of Public Administration for the U.S. Congress and the 

Environmental Protection Agency, April 2003. 

18DOJ and EPA have also entered into settlement agreements with two other companies. 

Specifically, in October 2000, the courts approved a settlement with Tampa Electric 

Company that resulted in an annual reduction of approximately 190,000 tons of sulfur 

dioxide and nitrogen oxide combined. In July 2002, a consent decree was entered into in a 

case involving PSEG Fossil LLC that resulted in an annual reduction of approximately 

35,940 tons of sulfur dioxide and 18,270 tons of nitrogen dioxide. 
Page 20 GAO-04-58 Clean Air Act 

Table 3: Judicial Settlements Entered Into with Coal-Fired Power Plants since 

Issuance of the December 2002 Final and Proposed NSR Rules 

Case Status of Negotiations 

Estimated Environmental 

Benefit of the Settlements 

U.S. v. Virginia Electric 

Power 

Consent decree submitted for 

public comment on April 21, 

2003 

Annual reduction of 237,000 

tons of sulfur dioxide and 

nitrogen oxide combined 

U.S. v. Wisconsin 

Electric Power 

Consent decree submitted for 

public comment on April 29, 

2003 

Annual reduction of 72,300 

tons of sulfur dioxide and 

32,600 tons of nitrogen oxide 

U.S. v. Alcoa Consent decree approved by 

the court on July 28, 2003 

Annual reduction of 52,900 

tons of sulfur dioxide and 

15,480 tons of nitrogen oxide 

U.S. v. Southern 

Indiana Gas and 

Electric Co. 

Settlement approved by the 

court on August 13, 2003 

Annual reduction of 10,600 

tons of sulfur dioxide and 

nitrogen oxide combined 

Source: DOJ and EPA. 

EPA’s Director of Air Enforcement believes these settlements suggest that 

the December 2002 final and proposed rules, as issued, did not 

significantly affect companies’ willingness to settle the cases. In this 

official’s opinion, the cases were not substantially affected prior to the 

announcement of the August 2003 final rule because the enforcement staff 

was successful in negotiating and revising the language and content of the 

rules. However, this official stressed that to the extent EPA decided to go 

forward with more explicit exclusions for routine maintenance, repair, and 

replacement, as it has now done, companies could be less willing to settle 

their cases. According to the former Director of EPA’s Office of Regulatory 

Enforcement, if EPA got agreements with companies in the remaining 

seven pending enforcement cases against coal-fired utilities that are 

equivalent to the settlements it has achieved in the past, sulfur dioxide 

emissions could be cut by as much as 2.9 million tons annually and 

substantial reductions in nitrogen oxide emissions could also be achieved. 

Some EPA enforcement officials and officials from environmental groups 

and states have raised concerns that the announced August 2003 rule, and 

any subsequent rules more explicitly defining what facility changes qualify 

for the routine maintenance exclusion, could negatively impact the 

enforcement cases even further. In a September 2003 legal filing in one of 

the enforcement cases, DOJ stated EPA’s position that the announced 

August 2003 rule is prospective in nature and does not affect the ongoing 

enforcement cases, which are based on past conduct. Officials from the 

New York and New Jersey Attorney General offices have said that the 
Page 21 GAO-04-58 Clean Air Act 

charges against the companies in these cases were brought under the 

previous NSR program, before any of the recent revisions, and the officials 

are confident that the judges will make decisions based on whether the 

companies violated the rules that were in effect at that time. While these 

officials did not expect the cases to be delayed on the basis of any motions 

that industry may file in light of the August 2003 rule, they noted that if 

such motions were filed, the officials would have to spend additional time 

and resources to defeat them. In addition to these effects, some 

stakeholders are also concerned that the rule could affect the remedies 

imposed on companies (including fines companies must pay or actions 

they must take) if the courts find the companies to be in violation of the 

old NSR rule. Officials from environmental groups and state attorney 

general offices expressed concerns that industry attorneys would attempt 

to argue that since the modifications for which they were found liable 

under the old rule were now permissible under the new rule, they should 

not be penalized. If judges were to agree, this could mean that fines may 

be reduced or companies may not be required to install pollution controls 

and reduce emissions to the extent that they might have been before the 

new rule. 

Indeed, on September 29, 2003, industry attorneys in the Illinois Power 

case asserted in their closing arguments that the new exclusion for routine 

maintenance in the August 2003 rule decisively undercut the critical 

premise of the government’s case because in the new rule, EPA changed 

the interpretation of the Clean Air Act upon which it had based the 

enforcement cases. The judge had not issued a ruling in the Illinois Power 

case at the time GAO completed this report. 

Several provisions in the December 2002 NSR final rule could limit 

assurance that the public has input on changes companies make to their 

facilities, especially those that increase emissions, hampering the public’s 

ability to monitor health risks and company compliance with NSR. The 

provisions could also limit assurance that the public has access to 

documents showing how companies estimated whether the changes would 

increase emissions enough to trigger NSR. For example, a company can 

now determine on its own if there is a “reasonable possibility” that a 

change could trigger NSR, but the rule is unclear about how companies 

will make this determination and how the public can access information 

about it. The extent of the rule’s impact depends on the extent to which 

other federal, state, and local regulations still require that companies 

obtain a permit and notify the public of modifications, but the scope of 

these other requirements varies widely. 

Portions of the 

December 2002 Final 

Rule Could Limit 

Assurance That the 

Public Has Input into 

Company Decisions 

to Modify a Facility 

When Modifications 

Affect Emissions 
Page 22 GAO-04-58 Clean Air Act 

The Plantwide Applicability Limit (PAL) provisions in the December 2002 

final rule could impact the amount of data available on, and public input 

into, facility changes and emissions. On the one hand, a PAL provides new 

opportunities for the public to have access to facility emissions 

information because a company must undergo a public notice and 

comment process before setting a PAL. The company must also monitor 

and report more detailed and frequent emissions information during the 

life of the PAL. For example, if a company decides to pursue a PAL, it must 

apply to the state or local air quality agency, which in turn must notify the 

public of the draft PAL and give the public at least 30 days to provide 

comments. The application must list each piece of equipment in the plant 

that emits the pollutant to be regulated under the PAL, such as a boiler or 

paint sprayer, and the “baseline” emissions it generates. Also, during the 

life of the PAL, a company must report semiannually to the state or local 

agency the monthly emissions of some or all of the NSR “criteria 

pollutants” from each piece of equipment. In contrast, for a facility without 

a PAL, in many instances the company would have limited emissions data 

for the facility. Thus, both the public notice and comment process for 

obtaining a PAL and the semiannual reporting requirements while subject 

to the PAL provide the public more specific and more frequent emissions 

information than would be provided for a facility that does not have a PAL. 

On the other hand, according to some state and local air quality agencies 

and environmental groups, because a company can pursue a facility 

change without an NSR permit under a PAL, as long as total facility 

emissions do not increase, the public may have fewer opportunities to 

provide input on a company’s decision to modify a facility, assess the 

emissions created (including hazardous air pollutants that may not be 

identified for monitoring under the PAL), and consider ways to control 

them. For example, if a company without a PAL decided to install a piece 

of equipment, such as a boiler, that would increase the facility’s emissions 

to a level that would trigger federal NSR, the company would have to 

submit an application to the state or local agency describing the change 

and the anticipated emissions.19 The agency would have to notify the 

public and give it 30 days to comment on the draft federal NSR permit, and 

the company would have to install the best available pollution controls on 

the equipment when making the facility change. However, under a PAL, 

 19Prior to the final rule, a company also had the option to “net out” of, or avoid, NSR by 

agreeing to reduce emissions elsewhere in a facility or accepting an enforceable emissions 

limit that was below the threshold for triggering NSR. 

Under a PAL, the Public 

Can Help Set a Facility’s 

Emissions Limit but May 

Not Have Input into 

Company Decisions to 

Modify the Facility When 

Modifications Affect 

Emissions 
Page 23 GAO-04-58 Clean Air Act 

the company could make the change without obtaining a federal NSR 

permit, soliciting public participation, or installing pollution controls, even 

though the change significantly increases emissions, as long as the 

company offsets the increase somewhere else within the facility and does 

not exceed the PAL. 

Some industry groups have responded that other federal, state, or local 

regulations will still require reporting and record keeping on facility 

changes and installation of emission control technology, so public access 

and input will not change. For example, if state and local air quality 

agencies require that companies obtain permits for facility changes not 

subject to federal NSR requirements, the public may still be notified about 

company plans to make a change and could comment on them. However, 

several states, as well as the State and Territorial Air Pollution Program 

Administrators and the Association of Local Air Pollution Control 

Officials, note that state and local emission control regulations governing 

such facility changes vary widely. For example, some local air quality 

agencies in California require a public comment process for many facility 

changes not subject to the federal NSR program, while Ohio requires that 

the public be notified of only large or potentially controversial changes. 

EPA program managers maintain that many past changes were not subject 

to federal NSR permits for a number of reasons, so public access will not 

change. For example, prior to the final rule, the managers stated that a 

company could make an unlimited number of changes to a facility, as long 

as any one change did not trigger NSR. In addition, if the emissions effects 

of some changes were too small to trigger NSR, a company could offset 

emissions increases with other emissions reductions, “netting out” of 

federal NSR requirements. The program managers also believe that a 

predominant number of states and localities would still require public 

notice and comment on these changes. 

The two provisions of the December 2002 final rule revising the method 

for calculating past emissions and estimating emissions resulting from a 

facility change could affect the amount and availability of information 

available to the public. Companies use these provisions to determine if 

their changes will trigger federal NSR requirements. To make this 

determination, a company must estimate the emissions expected after the 

change and compare this with the actual historic emissions prior to the 

change, known as the baseline emissions level. Before the rule, a company 

determined the baseline for a piece of equipment or operating procedure 

using the average annual emissions generated during the 24-month period 

Two Provisions Revising 

How Companies Measure 

Their Emissions Baseline 

and Estimate Future 

Emissions Could Limit 

Assurance That the Public 

Has Access to Data on 

Facility Changes 
Page 24 GAO-04-58 Clean Air Act 

prior to the change—or the company could seek to use a different period, 

more representative of normal operations. Under the new rule, a company 

will be able to choose any 24-month period in the past 10 years as the 

baseline. However, the company must adjust the baseline to account for 

any other pollution control requirements implemented during this time, 

such as limits on acid rain pollutants, and eliminate any time periods from 

consideration where facilities exceeded required emissions limits. 

Also under the new rule, once a company calculates its baseline, it 

compares the baseline to the expected emissions after the equipment or 

operations are modified to determine if emissions will increase enough to 

trigger NSR. Prior to the final rule, when estimating expected emissions, 

companies other than utilities had to assume that they would operate a 

piece of equipment at the maximum level possible representing the 

maximum possible emissions, even if they had not operated at that level in 

the past and did not plan to do so in the future. 20 Companies have said that 

this approach was unfair because, among other things, it ignored market 

fluctuations. EPA revised the method of calculating the expected 

emissions in the final rule. Now, a company can project the expected 

activity level after the facility change and estimate the resulting emissions 

accordingly. Thus, under the rule, some estimates of expected emissions 

most likely will be smaller than in the past. 

Various stakeholders involved in the NSR revisions disagree on the impact 

of these two changes. For example, some expect that companies will 

choose the time period that gives them the highest baseline, or allowable 

emissions, thereby giving the companies the greatest flexibility to make 

changes in response to economic variations without triggering NSR. On 

the other hand, EPA program managers and a representative of a major 

industry explain that this is not necessarily true because companies now 

have to adjust their baselines downward to account for other pollution 

control requirements. 

In those cases where companies set higher emissions baselines and 

estimate smaller emissions increases, the difference between these two 

numbers will be smaller than in the past and will not trigger the federal 

NSR program and its requisite permitting, public notice, and public 

 20Again, prior to the final rule, a company could avoid NSR review by reducing emissions 

elsewhere in a facility and accepting an enforceable emissions limit that was below the 

threshold for triggering NSR. 
Page 25 GAO-04-58 Clean Air Act 

comment requirements. These changes may still trigger state or local 

requirements to obtain a permit and its associated public participation 

rules, depending on the state or locality, but, as we have stated, the scope 

of these requirements varies widely. In addition, several industry 

representatives claim that the Title V provisions governing record keeping 

and reporting requirements will ensure the public continues to have 

emissions data to monitor compliance. But other stakeholders point out 

that the data are scattered across various programs, making it difficult for 

the public to determine if facilities made any changes and what impact, if 

any, this had on emissions. The public eventually may learn of a facility 

change because under the rule, a company must annually report if the 

actual emissions generated after certain changes exceeded the company’s 

estimate. In any event, this reporting is done after the change is in place, 

and the public can have any input. 

Also under the NSR program, when a company calculates the expected 

emissions after a change, if the company determines emissions will clearly 

exceed the federal NSR threshold, the company must obtain a permit to 

proceed. If the calculation does not clearly indicate that a proposed 

facility change triggers NSR, the company does not have to keep any 

records of this determination. Under the rule, a company can now 

determine if there is a “reasonable possibility” the change will trigger NSR 

requirements. If it does, the company must maintain on-site 

documentation of this decision, as well as emissions records for the 

modified equipment or process. EPA program managers maintain that as a 

result, more data may be available now than in the past. 

However, EPA did not define what constitutes a “reasonable possibility” 

that emissions will trigger federal NSR requirements in the final rule, so 

companies might not apply this provision consistently and are, in effect, 

policing themselves. As several state and local representatives pointed out, 

this makes it difficult for EPA, state and local air quality agencies, and the 

public to monitor compliance with NSR, potentially leading to increased 

emissions and enforcement actions. Similarly, NAPA reported that such 

self-policing could lead to implementation problems and inadequate 

reporting of information and recommended that EPA carefully oversee the 

calculation of emissions increases resulting from facility changes and that 

sources not be allowed to “self-police.” EPA program managers take issue 

with the conclusion that self-policing is inherently wrong and point out 

that many environmental programs provide such self-policing 

mechanisms. 
Page 26 GAO-04-58 Clean Air Act 

Furthermore, the rule states that if a company determines there is a 

reasonable possibility a facility change could trigger NSR, it must make the 

record of the determination as well as the emissions records related to the 

change available to state or local agency officials or the public upon 

request. But the rule is unclear how the public will know about the 

changes or access the company’s on-site records. According to industry 

representatives, some companies will keep records of all reasonable 

possibility determinations to limit their legal risks, and some will 

proactively reach out to local communities before undertaking facility 

changes because they want to maintain good relations in these 

communities. Nevertheless, this lack of clarity could potentially hinder 

enforcement and monitoring activities. It could also pose administrative 

problems for companies, should the public begin requesting information 

directly from them—especially if the information contains sensitive 

business data that the company is entitled to protect. EPA is currently 

considering comments it received on the reasonable possibility provision 

as part of its decision to reconsider portions of the final rule. The agency 

plans to determine whether it will make any changes by the end of 

October. 

While EPA enforcement officials assessed the potential impact of the 

December 2002 final and proposed rules on the enforcement cases against 

coal-fired utilities and made changes before announcing the rules, these 

officials and key stakeholders believe that settlement of some cases was 

delayed because of the prospect that the definition of routine maintenance 

could be revised in a way that would improve industry’s legal position. 

Furthermore, the announced August 2003 rule exempting the replacement 

of certain equipment from NSR requirements—the fundamental basis for 

most of the coal-fired utility cases—also likely will discourage utilities 

from settling at least some of the remaining cases. The rule may also affect 

judges’ decisions regarding whether the companies have to install 

pollution controls, jeopardizing the expected emissions reductions. 

Overall, as a result of the final rule, the public may have less assurance 

that they will have notice of, and information about, company plans to 

modify facilities in ways that affect emissions, as well as less opportunity 

to provide input on these changes and verify they will not increase 

emissions. In some but not all cases, state or local regulations may require 

companies to continue to provide the public with this information and 

opportunities for input, or companies may do so voluntarily. However, the 

public will not have consistent access and input unless EPA better (1) 

defines the criteria companies use to determine if there is a reasonable 

Conclusions 
Page 27 GAO-04-58 Clean Air Act 

possibility a facility change will trigger NSR requirements and (2) explains 

how the agency will ensure the public can access company documentation 

on such decisions and the resulting emissions. Otherwise, it will be more 

difficult not only for the public but also for EPA and state and local air 

quality agencies to ensure companies are complying with the federal NSR 

program and not increasing emissions in ways that affect localities’ air 

quality and public health. 

To better ensure the ability of federal, state, local, and public entities to 

monitor facility emissions and NSR compliance, we recommend that the 

EPA Administrator 

• better define what constitutes a “reasonable possibility” that emissions 

after a facility change will trigger NSR requirements, 

• require that companies maintain documentation on all “reasonable 

possibility” determinations, and 

• determine, with state and local air quality agencies, how to ensure public 

access to company’s on-site information on facility changes and emissions. 

We provided DOJ and EPA with an opportunity to review and comment on 

a draft of this report. We subsequently received comments from both 

agencies. DOJ advised that it could not address the accuracy of, or 

otherwise comment on, the statements of EPA officials contained in the 

report. The agency did not address or comment on those portions of the 

report concerning public access to emissions data that GAO discussed 

exclusively with EPA. DOJ also advised that its position on the final and 

proposed regulations discussed in the report are contained in its legal 

filings in the power plant cases, and GAO was provided with a copy of 

those filings. Since EPA’s December 2002 announcement of the final and 

proposed NSR rule changes, DOJ stated that it has continued to prosecute 

these cases vigorously and has also achieved settlements with four 

companies. DOJ also reiterated that its position as to the potential impact 

of the NSR rule announced in August 2003 has always been consistent and 

is reflected in its court filings—“that the rule only governs prospective 

conduct and should not impact the liability of companies who violated the 

law in the past.” 

EPA generally agreed with the report’s characterization of the NSR 

revisions’ potential impact on the ongoing enforcement cases. In terms of 

Recommendations for 

Executive Action 

Agency Comments 
Page 28 GAO-04-58 Clean Air Act 

the revisions’ impact on public access to information about facility 

modifications and emissions, however, the agency maintains the revisions, 

at a minimum, will not change, and most likely will increase, the amount 

of information available. According to EPA, before the revisions, 

companies were not obtaining federal NSR permits with their requisite 

public participation requirements for the types of changes that would be 

affected by the revisions, for several reasons. For example, companies 

could avoid federal NSR requirements for such changes by offsetting 

emissions increases with emissions reductions elsewhere in the facility (a 

process known as netting). EPA also maintains that even if these changes 

were not subject to federal NSR permitting requirements, they were 

subject to state and local permitting and public participation requirements 

in many cases, and that the NSR revisions would not change these 

underlying state and local programs. In addition, EPA said that facilities 

choosing to use a plantwide emissions limit have new and additional 

reporting requirements that could increase the information available, as 

we also point out in the report. Furthermore, the agency maintains that in 

the past, companies calculated the expected emissions from a 

modification and determined whether the emissions would increase 

enough to trigger federal NSR requirements. If the NSR requirements were 

not triggered, the companies did not have to keep records of the 

calculations. Now, companies can take the extra step of determining that 

even if the calculations do not show a significant enough increase, there is 

a “reasonable possibility” of an increase and companies must keep records 

on site supporting this determination. 

For our work, however, we compared the federal NSR requirements 

before and after the revisions and determined that the changes to these 

requirements could limit assurance that the public has access to 

information on facility changes and emissions. We did not have 

information on, and did not try to account for, the extent to which 

companies were actually triggering NSR requirements before and after the 

rule, or the effect this had on available information. Based on discussions 

with a number of state agencies and the national association representing 

them, among other stakeholders, as to whether state and local programs 

will continue to require permits and public notice for changes not subject 

to the federal program, we determined that the extent varied considerably 

across states and localities. For example, two states said they did not 

allow netting. Furthermore, a number of states indicated that even if such 

changes had been subject to their programs in the past, they might not be 

in the future because states and localities are facing pressures to modify 

their programs to match the federal NSR revisions and to not have more 

stringent requirements. 
Page 29 GAO-04-58 Clean Air Act 

As to GAO’s recommendations, EPA did not take a formal position on 

either the recommendation calling for additional guidance on reasonable 

possibility determinations or for the maintenance of all records on these 

determinations. The agency is still evaluating public comments it received 

on these issues as part of its agreement to reconsider portions of the NSR 

revisions and does not expect to make a final decision on the 

reconsideration process until the end of October 2003. EPA did agree with 

our recommendation on ways to better ensure public access to 

information on facility changes and emissions that companies maintain on 

site. DOJ and EPA also recommended a number of technical changes to 

the report, which we incorporated, as appropriate. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 10 days from the 

report date. At that time, we will send copies to the EPA Administrator, 

the Attorney General, interested congressional committees, and other 

interested parties. We will also make copies available to others upon 

request. In addition, the report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 

If you or your staffs have any questions, please call me at (202) 512-3841. 

Karen Keegan, Eileen Larence, Jeff Larson, and Lisa Turner made key 

contributions to this report. Nancy Crothers, Mike Hix, and Laura 

Yannayon also made important contributions. 

John B. Stephenson 

Director, Natural Resources 

 and Environment 
Appendix I: Objectives, Scope, and 

Methodology 

Page 30 GAO-04-58 Clean Air Act 

Our objectives were to determine (1) whether EPA and DOJ assessed the 

potential impact that issuing the final and proposed rules in December 

2002 would have on enforcement cases pending against coal-fired utilities 

and what the assessments indicated, and (2) what effect, if any, the final 

rule might have on public access to information on facility changes and 

the resulting emissions. 

To respond to the first objective, we interviewed both current and former 

EPA officials and current DOJ officials that were involved in discussions 

about the impact of the revisions on the relevant enforcement cases. These 

officials included the former Principal Deputy Assistant Administrator for 

EPA’s Office of Enforcement and Compliance Assurance, the former 

Director of EPA’s Office of Regulatory Enforcement, the current Director 

of EPA’s Air Enforcement Division, and the DOJ Deputy Assistant 

Attorney General for Environment and Natural Resources. We also 

submitted written document requests to both agencies, asking that they 

provide GAO with all documents referring to, relating to, or describing the 

assessments of the potential impact of the NSR revisions on the pending 

enforcement cases and discussions between officials from EPA and 

attorneys from DOJ concerning these assessments. 

In the case of DOJ, the agency’s enforcement staff acknowledged that in 

July 2002, they had prepared an internal evaluation, as backup material for 

testimony, that summarized EPA’s public announcement the previous 

month concerning proposed NSR rule changes the agency was 

considering, the content of some of the potential revisions, and the 

relevance of those changes to filed enforcement cases. The DOJ 

enforcement officials were concerned about providing us a copy of this 

document primarily because it could impact the ongoing litigation of the 

cases. In the case of EPA, the officials acknowledged that they, too, had 

prepared assessments, and they discussed the general content of some of 

them with us. They also provided us access to (but not copies of) the 

assessments supporting the December 2002 final rule. The officials had 

concerns similar to those of DOJ about (1) describing all of the details 

about the changes made to the rule as a result of the assessments, and (2) 

providing us access to the assessments concerning the December 2002 

proposed rule and the August 2003 rule. We did not further pursue access 

to this information because we had sufficient data to respond to our 

objectives, and it is GAO’s policy, except in limited circumstances, not to 

conduct work that would involve analyzing, evaluating, or commenting on 

specific issues that are pending before the courts. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology 

Page 31 GAO-04-58 Clean Air Act 

To respond to the second objective, we analyzed the December 2002 final 

rule to determine what provisions could impact public access to 

information about facility changes and their associated emissions. We 

interviewed the Director of EPA’s Information Transfer and Program 

Integration Division in the Office of Air Quality Planning and Standards, 

the Director of EPA’s Air Enforcement Division, and attorneys in EPA’s 

Office of General Counsel regarding the interpretation of relevant 

provisions of the rule and the potential effects of these provisions on 

public access. We also obtained the views of key stakeholders that could 

be affected by changes in public access to such information. To ensure we 

captured a wide cross section of interests, we focused on 

• groups identified by EPA officials as key stakeholders, 

• members of EPA’s CAA Advisory Council,1

• national level groups that have testified before Congress on NSR and CAA 

issues over the last several years, 

• national level groups that submitted comments to EPA in response to the 

agency’s request for public comment on its June 2001 NSR 90-Day Review 

Background Paper (many of these were identified in EPA’s June 2002 NSR 

Report to the President), and 

• trade associations representing those industries EPA identified as being 

most affected by NSR. 

Stakeholders included officials from the American Forest and Paper 

Association, Clean Air Trust, Georgia Pacific Company, National 

Petrochemical and Refiners Association, Natural Resources Defense 

Council, New York State Attorney General’s Office, Rockefeller Family 

Fund’s Environmental Integrity Project, and the professional association 

representing State and Territorial Air Pollution Program Administrators 

and the Association of Local Air Pollution Control Officials. 

 1

The council is a senior-level policy committee established in 1990 to advise EPA on issues 

related to implementing the CAA Amendments of 1990. Membership is approximately 60 

senior managers and experts representing state and local government, environmental and 

public interest groups, academic institutions, unions, trade associations, utilities, and 

industry. 
Appendix I: Objectives, Scope, and 

Methodology 

Page 32 GAO-04-58 Clean Air Act 

We conducted our work between August 2002 and October 2003 in 

accordance with generally accepted government auditing standards. 

(360383) 
The General Accounting Office, the audit, evaluation and investigative arm of 

Congress, exists to support Congress in meeting its constitutional responsibilities 

and to help improve the performance and accountability of the federal 

government for the American people. GAO examines the use of public funds; 

evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO’s commitment to good government 

is reflected in its core values of accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and fulltext files of current reports and testimony and an expanding archive of older 

products. The Web site features a search engine to help you locate documents 

using key words and phrases. You can print these documents in their entirety, 

including charts and other graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site 

daily. The list contains links to the full-text document files. To have GAO e-mail 

this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail 

alerts” under the “Order GAO Products” heading. 

The first copy of each printed report is free. Additional copies are $2 each. A 

check or money order should be made out to the Superintendent of Documents. 

GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a 

single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Public Affairs